UNIVERSITY CASEBOOK SERIES CONTRACTS - KU Law ......UNIVERSITY CASEBOOK SERIES® CONTRACTS CASES AND...

U N I V E R S I T Y C A S E B O O K S E R I E S ®

CONTRACTS

CASES AND MATERIALS

EIGHTH EDITION

by

E. ALLAN FARNSWORTH Late Alfred McCormack Professor of Law

Columbia University

CAROL SANGER Barbara Aronstein Black Professor of Law

Columbia University

NEIL B. COHEN Jeffrey D. Forchelli Professor of Law

Brooklyn Law School

RICHARD R.W. BROOKS Charles Keller Beekman Professor of Law

Columbia Law School

LARRY T. GARVIN Lawrence D. Stanley Professor of Law

Ohio State University

1

CHAPTER 1

BASES FOR ENFORCING PROMISES

SECTION 1. ENFORCEABLE PROMISES: AN INTRODUCTION

Most people have an informal sense of contracts. Almost everyone of consenting age has entered into a contract, often with little hesitation or ceremony. Consider, for example, the arrangement you have with your cell phone company or the agreement established when you accepted the offer of admission from your law school. You are no doubt already familiar with such common-sense notions of contracts. The aim of this book is to provide more formal content to those general understandings. We are interested in what “contract” means as a matter of law.

The Restatement of Contracts, Second, defines contract as “a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.’’ Restate-ment § 1. Not all promises are legally binding; the law does not provide a remedy for every broken promise. There may, of course, be moral or social sanctions for breaking a promise, but our primary inquiry here concerns the distinctive contributions of law. How does the law determine which promises to enforce?

We take up that question with two cases that focus on the promise it-self. The first considers whether a binding (or enforceable) promise was created by a doctor’s assertion that he would make a young man’s injured hand “one hundred percent perfect.” The second case queries whether an enforceable promise should be found in the printed materials of a boat manufacturer stating that its boats could attain a “maximum speed of 30 miles per hour.” These cases begin our consideration of why some promises are found to be legally enforceable and others not. The section concludes with a brief introduction to theories of why some promises should be legally enforceable. In Section 2 we turn to the issue of how the law enforces prom-ises, by taking an initial look at remedies for breach.

Beyond the “why” and “how” of promissory enforcement, these opening materials also serve as an introduction to the question of “where” the law of promissory obligation is to be found: the basic sources and authorities that govern most contractual relationships. We have already mentioned the in-fluential Restatement of Contracts, a comprehensive statement of general common law contract principles first promulgated by the American Law Institute (ALI) in 1932. The Restatement, Second, appeared in 1979 In this book, unless otherwise indicated, a reference to the “Restatement” refers to the Restatement, Second. While not enacted law itself, the Restatement has been aptly described by a former ALI director as “common law ‘persua-sive authority’ with a high degree of persuasion.” Herbert Goodrich, Re-statement and Codification, in DAVID DUDLEY FIELD: CENTENARY ESSAYS 241, 244-45 (Alison Reppy ed., 1949). For more on the history of the Re-statements, see the Selections for Contracts.

2 BASES FOR ENFORCING PROMISES CH. 1

Beyond the persuasive force of the Restatement, statutes are a distinc-tive and direct source of authority, particularly Article 2 of the Uniform Commercial Code, which as we shall see in our second case, applies in cases involving the sale of goods. We will highlight various other sources of con-tract law as we encounter them in the cases that follow. Of course, the pri-mary sources relied on in most casebooks, including this one, are cases—the judicial opinions that constitute the common law. We begin our study of promises with an old chestnut from the American common law of contracts, Hawkins v. McGee.

Hawkins v. McGee New Hampshire Supreme Court, 1929.

84 N.H. 114, 146 A. 641.

■ BRANCH, J. The operation in question consisted in the removal of a con-siderable quantity of scar tissue from the palm of the plaintiff’s right hand and the grafting of skin taken from the plaintiff’s chest in place thereof. The scar tissue was the result of a severe burn caused by contact with an electric wire, which the plaintiff received about nine years before the time of the transactions here involved. There was evidence to the effect that be-fore the operation was performed the plaintiff and his father went to the defendant’s office, and that the defendant, in answer to the question, “How long will the boy be in the hospital?” replied, “Three or four days, not over four; then the boy can go home and it will be just a few days when he will go back to work with a good hand.” Clearly this and other testimony to the same effect would not justify a finding that the doctor contracted to com-plete the hospital treatment in three or four days or that the plaintiff would be able to go back to work within a few days thereafter. The above state-ments could only be construed as expressions of opinion or predictions as to the probable duration of the treatment and plaintiff’s resulting disability, and the fact that these estimates were exceeded would impose no contrac-tual liability upon the defendant. The only substantial basis for the plain-tiff’s claim is the testimony that the defendant also said before the opera-tion was decided upon, “I will guarantee to make the hand a hundred per cent perfect hand or a hundred per cent good hand.” The plaintiff was pre-sent when these words were alleged to have been spoken, and, if they are to be taken at their face value, it seems obvious that proof of their utterance would establish the giving of a warranty in accordance with his contention.

The defendant argues, however, that, even if these words were uttered by him, no reasonable man would understand that they were used with the intention of entering “into any contractual relation whatever,” and that they could reasonably be understood only “as his expression in strong lan-guage that he believed and expected that as a result of the operation he would give the plaintiff a very good hand.” It may be conceded, as the de-fendant contends, that, before the question of the making of a contract should be submitted to a jury, there is a preliminary question of law for the trial court to pass upon, i.e. “whether the words could possibly have the meaning imputed to them by the party who founds his case upon a certain interpretation,” but it cannot be held that the trial court decided this ques-tion erroneously in the present case. It is unnecessary to determine at this time whether the argument of the defendant, based upon “common knowledge of the uncertainty which attends all surgical operations,” and the improbability that a surgeon would ever contract to make a damaged part of the human body “one hundred per cent perfect,” would, in the ab-

http://www.westlaw.com/find/default.wl?ft=Y&db=0000161&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1929115322&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1929115322&HistoryType=F

CH. 1 BASES FOR ENFORCING PROMISES 3

sence of countervailing considerations, be regarded as conclusive, for there were other factors in the present case which tended to support the conten-tion of the plaintiff. There was evidence that the defendant repeatedly so-licited from the plaintiff’s father the opportunity to perform this operation, and the theory was advanced by plaintiff’s counsel in cross-examination of defendant that he sought an opportunity to “experiment on skin grafting,” in which he had had little previous experience. If the jury accepted this part of plaintiff’s contention, there would be a reasonable basis for the fur-ther conclusion that, if defendant spoke the words attributed to him, he did so with the intention that they should be accepted at their face value, as an inducement for the granting of consent to the operation by the plaintiff and his father, and there was ample evidence that they were so accepted by them. The question of the making of the alleged contract was properly submitted to the jury.

[The Court then discussed the proper measure of damages and, finding that the trial court’s charge to the jury was erroneous (the trial court had instructed that the jury could consider the “(1) pain and suffering due to the operation; and (2) positive ill effects of the operation upon the plaintiff’s hand”), it ordered a new trial on the calculation of damages. We take up the question of damages in such a case—what it means for the law to give a remedy—in Section 2.]

NOTES

(1) One Hundred Percent. Although Dr. McGee made a number of state-

ments to the boy’s father regarding the outcome of treatment, it does not ap-

pear that he actually used the word “promise.” What then makes a statement a

promise? Consider the role of language, its context, and the nature of the

transaction in Hawkins. See Restatement §§ 2 and 4. What result if, before per-

forming reconstructive knee surgery, a surgeon tells the patient that “the oper-

ation could give you a knee that was stronger than before” and that the patient

would, “if committed, play basketball again”? See Anglin v. Kleeman, 665 A.2d

747 (N.H. 1995).

(2) Policy Considerations. In a well-known case involving plastic surgery

gone wrong, the court observed that “[i]t is not hard to see why the courts

should be unenthusiastic or skeptical about contract theory [in such a case].”

Sullivan v. O’Connor, 296 N.E.2d 183 (Mass. 1973). (The Sullivan case is pre-

sented on p. 15 below.) Is judicial skepticism about recovery in contract special-

ly warranted in a medical setting? Why?

Might an aggrieved plaintiff try other theories of recovery? What factors

contribute to a decision to bring one type of claim rather than another? The

availability of certain kinds of damages available in tort, for example, but not

in contract? The application of the relevant statute of limitations?

The questions highlight structural limitations of the traditional law school

curriculum. Although first year courses are sometimes taught as though they

had little substantive relation to one another, the connections among them are

many. Contracts for the sale of property, for example, require an underlying

understanding of what counts as property and is therefore subject to transfer.

Land obviously qualifies, but what about leaseholds, or ideas, or embryos? The-

se questions are sometimes resolved in the context of a contract action, as we

will see in connection with commercial surrogacy at p. 613 below. More often,

however, contract law proceeds against the background of existing rules of

http://www.westlaw.com/find/default.wl?ft=Y&db=0000162&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1995199931&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1995199931&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000162&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1995199931&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1995199931&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000578&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1973113924&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1973113924&HistoryType=F


property, civil procedure, torts, and so on. We will from time to time point out

the significance of these other foundational areas for the contract issue at hand,

and urge you to keep an eye on the connections between contract law and your

other subjects throughout this course.

(3) Statutory Override. Common-law rulings by courts sometimes give way

to contrary judgments by legislatures. Consider the following example. In 1971,

the Michigan Supreme Court affirmed a judgment for damages for breach of

contract against a surgeon who, according to his patient’s testimony, had said

before a stomach operation, “After this operation, you can throw your pillbox

away” and “Once you have an operation it takes care of all your troubles.”

Guilmet v. Campbell, 188 N.W.2d 601 (Mich. 1971). Three years later, the

Michigan legislature enacted a statute providing that an “agreement, promise,

contract, or warranty of cure relating to medical care or treatment” is void un-

less evidenced by a signed writing. Mich.Comp.L.Ann. 566.132(1)(g). How

might this statute have come about?

We note the interplay between courts, legislatures, and other law-making

bodies such as regulatory agencies at various points throughout this book. As

you read, think about the strengths and advantages of each with regard to

making or reforming contract law. Keep in mind such factors as institutional

competence, legitimacy, and the practical necessities of law-making.

Bayliner Marine Corp. v. Crow Supreme Court of Virginia, 1999.

257 Va. 121, 509 S.E.2d 499.

■ KEENAN, JUSTICE. In this appeal, the dispositive issue is whether there was sufficient evidence to support the trial court’s ruling that the manufac-turer of a sport fishing boat breached an express warranty and implied warranties of merchantability and fitness for a particular purpose.

In the summer of 1989, John R. Crow was invited by John Atherton, then a sales representative for Tidewater Yacht Agency, Inc. (Tidewater), to ride on a new model sport fishing boat known as a 3486 Trophy Convert-ible, manufactured by Bayliner Marine Corporation (Bayliner). During an excursion lasting about 20 minutes, Crow piloted the boat for a short period of time but was not able to determine its speed because there was no equipment on board for such testing.

When Crow asked Atherton about the maximum speed of the boat, Atherton explained that he had no personal experience with the boat or information from other customers concerning the boat’s performance. Therefore, Atherton consulted two documents described as “prop matrixes,” which were included by Bayliner in its dealer’s manual.

Atherton gave Crow copies of the “prop matrixes,” which listed the boat models offered by Bayliner and stated the recommended propeller siz-es, gear ratios, and engine sizes for each model. The “prop matrixes” also listed the maximum speed for each model. The 3486 Trophy Convertible was listed as having a maximum speed of 30 miles per hour when equipped with a size “20x20” or “20x19” propeller. The boat Crow purchased did not have either size propeller but, instead, had a size “20x17” propeller.

At the bottom of one of the “prop matrixes” was the following disclaim-er: “This data is intended for comparative purposes only, and is available without reference to weather conditions or other variables. All testing was

http://www.westlaw.com/find/default.wl?ft=Y&db=0000595&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1971118185&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1971118185&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000711&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1999029827&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1999029827&HistoryType=F


done at or near sea level, with full fuel and water tanks, and approximately 600 lb. passenger and gear weight.”

Atherton also showed Crow a Bayliner brochure describing the 1989 boat models, including the 3486 Trophy Convertible. The brochure included a picture of that model fully rigged for offshore fishing accompanied by the statement that this model “delivers the kind of performance you need to get to the prime offshore fishing grounds.”

In August 1989, Crow entered into a written contract for the purchase of the 3486 Trophy Convertible in which he had ridden. The purchase price was $120,000, exclusive of taxes. The purchase price included various equipment to be installed by Tidewater including a generator, a cockpit cover, a “Bimini top,” a winch, a spotlight, radar, a navigation system, an icemaker, fishing outriggers, an automatic pilot system, extra fuel gauges, a second radio, and air conditioning and heating units. The total weight of the added equipment was about 2,000 pounds. Crow did not test drive the boat after the additional equipment was installed or at any other time prior to taking delivery.

When Crow took delivery of the boat in September 1989, he piloted it onto the Elizabeth River. He noticed that the boat’s speed measuring equipment, which was installed in accordance with the contract terms, in-dicated that the boat’s maximum speed was 13 miles per hour. Crow imme-diately returned to Tidewater and reported the problem.

During the next 12 to 14 months, while Crow retained ownership and possession of the boat, Tidewater made numerous repairs and adjustments to the boat in an attempt to increase its speed capability. Despite these ef-forts, the boat consistently achieved a maximum speed of only 17 miles per hour, except for one period following an engine modification when it tempo-rarily reached a speed of about 24 miles per hour. In July 1990, a repre-sentative from Bayliner wrote Crow a letter stating that the performance representations made at the time of purchase were incorrect, and that 23 to 25 miles per hour was the maximum speed the boat could achieve.

In 1992, Crow filed a motion for judgment against Tidewater, Bayliner, and Brunswick Corporation, the manufacturer of the boat’s diesel engines. Crow alleged, among other things, that Bayliner breached express warranties, and implied warranties of merchantability and fitness for a particular purpose.

At a bench trial in 1994, Crow, Atherton, and Gordon W. Shelton, III, Tidewater’s owner, testified that speed is a critical quality in boats used for offshore sport fishing in the Tidewater area of Virginia because of the dis-tance between the coast and the offshore fishing grounds. According to the-se witnesses, a typical offshore fishing site in that area is 90 miles from the coast. Therefore, the speed at which the boat can travel to and from fishing sites has a major impact on the amount of time left in a day for fishing.

Crow testified that because of the boat’s slow speed, he could not use the boat for offshore fishing, that he had no other use for it, and that he would not have purchased the boat if he had known that its maximum speed was 23 to 25 miles per hour. . . .

The trial court entered judgment in favor of Crow against Bayliner on the counts of breach of express warranty and breach of implied warranties of merchantability and fitness for a particular purpose. . . . On appeal, we review the evidence in the light most favorable to Crow, the prevailing par-ty at trial.


Crow argues that the “prop matrixes” he received created an express warranty by Bayliner that the boat he purchased was capable of a maxi-mum speed of 30 miles per hour. We disagree.

Code § 8.2–313 provides, in relevant part:

Express warranties by the seller are created as follows:

(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affir-mation or promise.

(b) Any description of the goods which is made a part of the basis of the bargain creates an express warranty that the goods shall conform to the description.

The issue whether a particular affirmation of fact made by the seller constitutes an express warranty is generally a question of fact. See id., Of-ficial Comment 3; Daughtrey v. Ashe, 243 Va. 73, 78, 413 S.E.2d 336, 339 (1992). In Daughtrey, we examined whether a jeweler’s statement on an appraisal form constituted an express warranty. We held that the jeweler’s description of the particular diamonds being purchased as “v.v.s. quality” constituted an express warranty that the diamonds were, in fact, of that grade. Id. at 77, 413 S.E.2d at 338.

Unlike the representation in Daughtrey, however, the statements in the “prop matrixes” provided by Bayliner did not relate to the particular boat purchased by Crow, or to one having substantially similar characteris-tics. By their plain terms, the figures stated in the “prop matrixes” referred to a boat with different sized propellers that carried equipment weighing substantially less than the equipment on Crow’s boat. Therefore, we con-clude that the statements contained in the “prop matrixes” did not consti-tute an express warranty by Bayliner about the performance capabilities of the particular boat purchased by Crow.

Crow also contends that Bayliner made an express warranty regarding the boat’s maximum speed in the statement in Bayliner’s sales brochure that this model boat “delivers the kind of performance you need to get to the prime offshore fishing grounds.” While the general rule is that a de-scription of the goods that forms a basis of the bargain constitutes an ex-press warranty, Code § 8.2–313(2) directs that “a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.”

The statement made by Bayliner in its sales brochure is merely a commendation of the boat’s performance and does not describe a specific characteristic or feature of the boat. The statement simply expressed the manufacturer’s opinion concerning the quality of the boat’s performance and did not create an express warranty that the boat was capable of attain-ing a speed of 30 miles per hour. Therefore, we conclude that the evidence does not support the trial court’s finding that Bayliner breached an express warranty made to Crow.

[The Court also found that Bayliner had not violated the “implied war-ranty of merchantability” provided in UCC § 2–314. Discussion of implied warranties is left to Chapter 5.]

Reversed and final judgment.

http://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1992023659&fn=_top&referenceposition=339&findtype=Y&vr=2.0&db=0000711&wbtoolsId=1992023659&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1992023659&fn=_top&referenceposition=339&findtype=Y&vr=2.0&db=0000711&wbtoolsId=1992023659&HistoryType=F


NOTES

(1) Express Warranties. According to Crow, what promise had Atherton

broken? By what means had the supposed promise been made? Why should an

express warranty result even if the seller did not intend to make one? What if

Atherton had told Crow during their negotiations that “in my opinion this boat

will go 30 miles per hour no trouble”? See UCC § 2–313(2).

(2) Implied Warranties. Suppose that another purchaser contracted with a

boat manufacturer for the sale of a speed boat and that as in the principal case,

the contract was silent with regard to the boat’s speed. Assuming that there

had been no brochure or any discussion of speed between the parties prior to

the sale, would any promise have been broken if when the purchaser revved the

engine of his new boat, it was able to achieve a maximum speed of only two

miles per hour? See UCC § 2–314 (2). Which of the provisions of that subsection

might apply? How do implied warranties alter the force or applicability of the

familiar saying caveat emptor? We discuss implied warranties, including dis-

claimers of warranties, in greater detail in Chapter 6.

(3) UCC Primer. Article 2 of the Uniform Commercial Code (UCC or “the

Code”) is the primary source of law for transactions involving the sale of goods

in the United States. The Code itself is the product of the American Law Insti-

tute and the National Conference of Commissioners on Uniform State Laws

(NCCUSL). Versions of the Code have been enacted across the country by state

legislatures, and by Congress for the District of Columbia. Article 2 is funda-

mental to the study of contract law, and cases exploring its structure and how

it differs from the common law appear throughout this book. For now, however,

a few basics are in order.

Transactions covered by Article 2 include not only sales between mer-

chants but also those between merchants and consumers, as in Bayliner. As we

shall see, in a number of areas Article 2 provides special rules for merchants,

who are assumed to be more sophisticated and more familiar with commercial

practices than are consumers. Determining whether a party is a merchant is

therefore an important preliminary question. Article 2 defines merchant to in-

clude not only “a person who deals in goods of the kind” but also one who “by

his occupation holds himself out as having knowledge or skill peculiar to the

goods involved in the transaction.” UCC § 2–104(1). Comment 2 to that section

lists special Article 2 merchant provisions which treat merchants differently

from nonmerchants; we return to the significance of a party’s status as a mer-

chant at various points.

A second basic matter concerns the definition of “goods.” The starting

point is UCC § 2–105(1). What are “things . . . which are movable”? Is land

“goods”? Is a 10–ton printing press “goods”? What if in the case above, Crow

had custom-ordered his boat so that at the time of the contract the boat had not

been built? See UCC § 2–105(2). The application of Article 2 is often called into

question in contracts that involve both goods and services. Article 2 does not

apply, for example, to a contract to paint the exterior of a house, even though a

small amount of paint (goods) will be transferred, because the goods component

of the contract is incidental. But what about other kinds of “hybrid contracts”

such as contracts involving the sale of goods and the provision of services, or

contracts involving the sale of goods and the sale of property other than goods,

such as real estate? Should Article 2 apply to a contract that includes both the

sale and installation of an appliance such as a washing machine? What about a


catering contract in which the customer is paying both for food and for food

preparation? We look more closely at the problem of hybrid contracts in Chap-

ter 8.

Finally, it is important to keep in mind that the Code does not wholly sup-

plant the common law. UCC § 1–103(b) states that “[u]nless displaced by the

particular provisions of [the Code], the principles of law and equity . . . supple-

ment its provisions.” UCC § 1–103(b) provides a lengthy list of principles of law

and equity that may supplement the Code, including such principles as capaci-

ty to contract, duress, and mistake. For a helpful discussion of the concept of

supplementation, see Comment 2 to UCC § 1–103.

THEORIES OF CONTRACT ENFORCEMENT

The law of contract is the law of enforceable promises. But why should law enforce promises? In a well known article from the last century, legal philosopher Morris Cohen suggested that “[t]he simplest answer is that of the intuitionists, namely, that promises are sacred per se, that there is something inherently despicable about not keeping a promise, and that a properly organized society should not tolerate this.” At the same time, Cohen thought it very doubtful that

“many of us would want to live in an entirely rigid world in which one would be obliged to keep all one’s promises instead of the present more viable system, in which a vaguely fair proportion is sufficient. Many of us indeed would shudder at the idea of being bound by every promise, no matter how foolish, without any chance of letting increased wisdom undo past foolishness. Certainly, some freedom to change one’s mind is necessary for free intercourse between those who lack omniscience.” Morris Cohen, The Basis of Contract, 46 Harv.L.Rev 553, 571–74, 580–583 (1932).

Few would argue with the notion that promises carry moral force. So evi-dent, it is almost tautological. Yet, when the force of law is brought to bear on promises, commonsense notions become more complicated and more con-tested. “Nowhere,” declared Oliver Wendell Holmes,a “is the confusion be-tween legal and moral ideas more manifest than in the law of contract.” The Path of the Law, 10 Harv. L. Rev. 457 (1897).

Conceding that law is justified in enforcing some, but not all, promises, the pertinent question then becomes, what distinguishes the promises that law will enforce from those it will not? To address this question, a number of theoretical arguments have been proposed, some more compelling than others. Pursuing these lines of argument in any detail would take us well beyond the scope of this casebook: our primary focus is contract doctrine—the basic rules and practices that comprise contract law. However, as we shall see, theoretical perspectives on promises can usefully inform the ap-plication of doctrine. For example, as the court observed in Mills v. Wyman, p. 52 below, “[g]eneral rules of law established for the protection and secu-rity of honest and fair-minded men, who may inconsiderately make promis-

a Oliver Wendell Holmes, Jr. (1841–1935) practiced law in Boston, served briefly as pro-

fessor of law at Harvard, and then for twenty years as justice and later chief justice of the Supreme Judicial Court of Massachusetts. In 1902 President Theodore Roosevelt appointed him to the Supreme Court of the United States, where the quality of his dissenting opinions won him the title of the “Great Dissenter.” He resigned because of his great age in 1932. His most famous work is The Common Law (1881), based on a series of lectures.



es without any equivalent, will sometimes screen men of a different charac-ter from engagements which they are bound in foro conscientiae to per-form.”

Every theoretical argument justifying promissory liability emphasizes certain underlying values served by contract doctrine. Take, for instance, two competing theories that ground legal enforcement in the promisor’s autonomy or will. The “contract as promise” thesis holds that law is justi-fied in enforcing a promise when an individual “intentionally invoke[s] a convention whose function is to give grounds—moral grounds—for another to expect the promised performance.” See, Charles Fried, Contract as Prom-ise, at p. 16. Morality alone, however, won’t tell us which promises are or ought to be legally enforceable, since all promises carry some moral force. The competing “consent theory” grounds enforcement less in a general moral duty to keep one’s promises than in consensual undertakings that reveal an “intention to create a legally enforceable obligation.” See Randy E. Barnett, A Consent Theory of Contract, 86 Colum. L. Rev. 269, 300 (1986).

Both “contract as promise” and the “consent theory” look to the promi-sor’s will—in making a promise or voluntarily taking on a legal duty—in locating the basis for judicial enforcement. A third theoretical basis of promissory obligation flips the focus from the promisor’s will to the promi-see’s reliance. When a promisee reasonably relies on a promise to his det-riment, law may and in many cases does enforce the promise, even against the promisor’s will, in order to protect the promisee. Reliance theories are most clearly implicated in the various estoppel doctrines that enforce prom-ises where the promise has triggered reasonable, foreseeable and justifiable detrimental action by the promisee.

Still other rival theoretical arguments for legal enforceability focus less on the interests of the parties, whether promisors or promisees, and more on broader criteria such as economic efficiency, predictability, fair-ness, social justice and distribution to justify legal enforcement of doctrine. For example, as Morris Cohen observed, “[t]here can be no doubt that from an empirical or historical point of view, the ability to rely on the promises of others adds to the confidence necessary to social intercourse and enter-prise.” Whether or not these broader criteria undergird the whole of con-tract law, there is no doubt that aspects of each are reflected in the various doctrines we will study. As you read the cases going forward, be alert to the competing normative values that justify the legal enforcement of promises. Predictability, for instance, is a central motivating feature of the considera-tion doctrine, the topic of Section 3, and fairness, social justice and distri-bution run through doctrine of unconscionability discussed in Chapter 6. Theories of economic efficiency have been most effective, and perhaps also most controversial, in the doctrines involving contract remedies, the topic to which we now turn.

SECTION 2. REMEDYING BREACH

We all know what it means to keep a promise. Simply put, it means doing what was promised. But what does it mean to enforce a promise that has not been kept? Restatement § 1 defines a contract in terms of both a legal duty to perform a promise and the provision of a remedy if perfor-mance does not occur. How does the law determine the appropriate reme-dy? Although the answer is taken up in detail in Chapter 7, some consider-



ation of remedies is useful at the outset to get a sense of what is at stake practically and conceptually when a promise is broken.

The cases that follow introduce two fundamental assumptions made by courts in the development of remedies. The first is that the law is primarily concerned with relief of aggrieved promisees and not with punishment of promisors. The second assumption is that the primary purpose of the reme-dy is to give promisees “the benefit of the bargain” by protecting expecta-tion interests. As expressed in Restatement § 344(a), the objective of pro-tecting a promisee’s expectation interest is to put the promisee “in as good a position as he would have been in had the contract been performed.” While easily stated, the complexities of figuring out just how to measure that in-terest are tested in our next case, Naval Institute, wherein the court seeks to compensate Naval by calculating the extent of profits it lost on account of Berkley’s breach of promise. This amount, and no more, constituted Naval’s expectation interest.

United States Naval Institute v. Charter Communications, Inc

United States Court of Appeals, Second Circuit, 1991.

936 F.2d 692.

■ KEARSE, CIRCUIT JUDGE: This case returns to us following our remand in United States Naval Institute v. Charter Communications, Inc., 875 F.2d 1044 (2d Cir.1989) (“Naval I”), . . . for the fashioning of relief in favor of plaintiff United States Naval Institute (“Naval”) against defendant Charter Communications, Inc., and Berkley Publishing Group (collectively “Berk-ley”), for breach of an agreement with respect to the publication of the pa-perback edition of The Hunt For Red October (“Red October” or the “Book”). On remand, the district court awarded Naval $35,380.50 in damages [and] $7,760.12 as profits wrongfully received by Berkley. . . . Naval appeals from so much of the judgment as failed to award a greater amount as prof-its. . . . Berkley cross-appeals from the judgment as a whole and from such parts of it as awarded moneys to Naval. For the reasons below, we reverse the award of profits; we affirm the award of damages. . . .

I. Background

. . . Naval, as the assignee of the author’s copyright in Red October, entered into a licensing agreement with Berkley in September 1984 (the “Agreement”), granting Berkley the exclusive license to publish a paper-back edition of the Book “not sooner than October 1985.” Berkley shipped its paperback edition to retail outlets early, placing those outlets in position to sell the paperback prior to October 1985. As a result, retail sales of the paperback began on September 15, 1985, and early sales were sufficiently substantial that the Book was near the top of paperback bestseller lists be-fore the end of September 1985.

Naval commenced the present action when it learned of Berkley’s plans for early shipment, and it unsuccessfully sought a preliminary in-junction. After trial, the district judge dismissed the complaint. He ruled that Berkley had not breached the Agreement because it was entitled, in accordance with industry custom, to ship prior to the agreed publication date. On appeal, we reversed. Though we upheld the district court’s finding that the Agreement did not prohibit the early shipments themselves, we concluded that if the “not sooner than October 1985” term of the Agreement

http://www.westlaw.com/find/default.wl?ft=Y&db=0000350&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1991111443&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1991111443&HistoryType=F


had any meaning whatever, it meant at least that Berkley was not allowed to cause such voluminous paperback retail sales prior to that date, and that Berkley had therefore breached the Agreement. Naval I, 875 F.2d at 1049–51. Accordingly, we remanded for entry of a judgment awarding Naval ap-propriate relief.

On the remand, Naval asserted that it was entitled to recovery for copyright infringement, and it sought judgment awarding it all of Berkley’s profits from pre-October 1985 sales of the Book; it estimated those profits at $724,300. . . . Berkley, on the other hand, [contended] that Berkley could not be held liable for copyright infringement . . .; it argued that Naval therefore had at most a claim for breach-of-contract [and] argued that the profits attributed to it by Naval were inflated. . . . [On remand, the district judge] concluded that Naval was entitled to recover damages for copyright infringement, comprising actual damages suffered by Naval plus Berkley’s profits “attributable to the infringement,” 17 U.S.C. § 504(b).

The court calculated Naval’s “actual damages from Berkley’s wrongful pre-October ‘publication’ ” as the profits Naval would have earned from hardcover sales in September 1985 if the competing paperback edition had not then been offered for sale. July 17 Order at 8. Noting the downward trend of hardcover sales of the Book from March through August 1985, the court found that there was no reason to infer that Naval’s September 1985 sales would have exceeded its August 1985 sales. The court calculated Na-val’s lost sales as the difference between the actual hardcover sales for those two months, and awarded Naval $35,380.50 as actual damages.

The district judge held that Berkley’s profits “attributable to the in-fringement” were only those profits that resulted from “sales to customers who would not have bought the paperback but for the fact it became avail-able in September.” July 17 Order at 10. He found that most of the Sep-tember paperback sales were made to buyers who would not have bought a hardcover edition in September, and therefore only those September sales that displaced hardcover sales were attributable to the infringement. Berk-ley’s profit on the displacing copies totaled $7,760.12, and the court award-ed that amount to Naval. . . .

II. Discussion

A. Naval’s Claim of Copyright Infringement

[The court rejected this claim because an exclusive licensee cannot be liable for infringing the copyright conveyed to it, even though it is liable for breach of contract.]

B. Contract Damages . . .

Since the purpose of damages for breach of contract is to compensate the injured party for the loss caused by the breach, 5 Corbin On Contracts § 1002, at 31 (1964), those damages are generally measured by the plain-tiff’s actual loss, see, e.g., Restatement (Second) of Contracts § 347 (1981). While on occasion the defendant’s profits are used as the measure of dam-ages, see, e.g., Cincinnati Siemens–Lungren Gas Illuminating Co. v. West-ern Siemens–Lungren Co., 152 U.S. 200, 204–07 (1894), . . . this generally occurs when those profits tend to define the plaintiff’s loss, for an award of the defendant’s profits where they greatly exceed the plaintiff’s loss and there has been no tortious conduct on the part of the defendant would tend to be punitive, and punitive awards are not part of the law of contract dam-ages. See generally Restatement (Second) of Contracts § 356 comment a

http://www.westlaw.com/find/default.wl?ft=L&docname=17USCAS504&rs=ap2.0&rp=%2ffind%2fdefault.wl&fn=_top&findtype=L&vr=2.0&db=1000546&wbtoolsId=17USCAS504&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1894180179&fn=_top&referenceposition=07&findtype=Y&vr=2.0&db=0000780&wbtoolsId=1894180179&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1894180179&fn=_top&referenceposition=07&findtype=Y&vr=2.0&db=0000780&wbtoolsId=1894180179&HistoryType=F


(“The central objective behind the system of contract remedies is compensa-tory, not punitive.”); id. comment b (agreement attempting to fix damages in amount vastly greater than what approximates actual loss would be un-enforceable as imposing a penalty); id. § 355 (punitive damages not recov-erable for breach of contract unless conduct constituting the breach is also a tort for which such damages are recoverable).

Here, the district court found that Berkley’s alleged $724,300 profits did not define Naval’s loss because many persons who bought the paper-back in September 1985 would not have bought the book in hardcover but would merely have waited until the paperback edition became available. This finding is not clearly erroneous, and we turn to the question of wheth-er the district court’s finding that Naval suffered $35,380.50 in actual dam-ages was proper.

In reaching the $35,380.50 figure, the court operated on the premise that, but for the breach by Berkley, Naval would have sold in September the same number of hardcover copies it sold in August. Berkley challenges that premise as speculative and argues that since Naval presented no evi-dence as to what its September 1985 sales would have been, Naval is enti-tled to recover no damages. It argues alternatively that the court should have computed damages on the premise that sales in the second half of September, in the absence of Berkley’s premature release of the paperback edition, would have been made at the same rate as in the first half of Sep-tember. Evaluating the district court’s calculation of damages under the clearly erroneous standard of review, . . . we reject Berkley’s contentions.

The record showed that, though there was a declining trend of hard-cover sales of the Book from March through August 1985, Naval continued to sell its hardcover copies through the end of 1985, averaging some 3,000 copies a month in the latter period.b It plainly was not error for the district court to find that the preponderance of the evidence indicated that Berk-ley’s early shipment of 1,400,000 copies of its paperback edition, some 40% of which went to retail outlets and led to the Book’s rising close to the top of the paperback bestseller lists before the end of September 1985, caused Naval the loss of some hardcover sales prior to October 1985.

As to the quantification of that loss, we think it was within the prerog-ative of the court as finder of fact to look to Naval’s August 1985 sales. Though there was no proof as to precisely what the unimpeded volume of hardcover sales would have been for the entire month of September, any such evidence would necessarily have been hypothetical. But it is not error to lay the normal uncertainty in such hypotheses at the door of the wrong-doer who altered the proper course of events, instead of at the door of the injured party. See, e.g., Lamborn v. Dittmer, 873 F.2d 522, 532-33 (2d Cir. 1989); Lee v. Joseph E. Seagram & Sons, Inc., 552 F.2d 447, 455-56 (2d Cir. 1977). . . . See generally . . . Restatement (Second) of Contracts § 352 comment a (“Doubts are generally resolved against the party in breach.”). The court was not required to use as the starting point for its calculations Naval’s actual sales in the first half of September, i.e., those made prior to the first retail sale of the paperback edition. Berkley has not called to our attention any evidence in the record to indicate that the sales in a given month are normally spread evenly through that month. Indeed, it concedes that “[t]o a large degree, book sales depend on public whim and are notori-

b It is unclear where Judge Kearse got the figure of only “some 3,000 copies a month” used in the paragraph after the next, but it might be a misprint for 30,000, an approximation of the August figure.

http://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1989064213&fn=_top&referenceposition=33&findtype=Y&vr=2.0&db=0000350&wbtoolsId=1989064213&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1989064213&fn=_top&referenceposition=33&findtype=Y&vr=2.0&db=0000350&wbtoolsId=1989064213&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1977104646&fn=_top&referenceposition=56&findtype=Y&vr=2.0&db=0000350&wbtoolsId=1977104646&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1977104646&fn=_top&referenceposition=56&findtype=Y&vr=2.0&db=0000350&wbtoolsId=1977104646&HistoryType=F


ously unpredictable. . . . ” (Berkley brief on appeal at 31 n. 15.) Thus, noth-ing in the record foreclosed the possibility that, absent Berkley’s breach, sales of hardcover copies in the latter part of September would have out-paced sales of those copies in the early part of the month. Though the court accurately described its selection of August 1985 sales as its benchmark as “generous[ ],” it was not improper, given the inherent uncertainty, to exer-cise generosity in favor of the injured party rather than in favor of the breaching party.

In all the circumstances, we cannot say that the district court’s calcu-lation of Naval’s damages was clearly erroneous. . . .

Conclusion

. . . For the foregoing reasons, we reverse so much of the judgment as granted Naval $7,760.12 as an award of Berkley’s profits. In all other re-spects, the judgment is affirmed.

NOTES

(1) Measuring Promisee’s Loss. How did the district court go wrong in

awarding Berkley’s profits on pre-October paperback sales to Naval Institute?

How does that award square with protecting Naval’s expectation interest? How

does it square with the assumption that the law’s concern is with relief of prom-

isees and not punishment of promisors?

(2) Conceptualizing Disgorgement. Are there any cases where “the defend-

ant’s profits . . . tend to define the plaintiff’s loss,” as Judge Kearse put it? Pro-

fessor E. Allan Farnsworthc described such cases, like Cincinnati Siemens–

Lungren cited in Naval Institute, as follows:

“Suppose that a seller of a business makes a valid contract not to compete

with the buyer and then breaks the covenant by operating a competing busi-

ness. If the buyer claims damages . . ., the court will often receive evidence of

the profits that the seller made from the competing business as evidence of the

profit that the buyer lost as a result of the breach. But a court will not assume

that the buyer could have made the same sales that the seller did. . . .” Your

Loss or My Gain? The Dilemma of the Disgorgement Principle in Breach of

Contract Cases, 94 Yale L.J. 1339, 1366 (1985).

In other words, where the breaching promisor’s profits match the amount

the promisee would have gained had the promise been performed, disgorge-

ment and expectation produce the same figure, and disgorgement may be or-

dered. Nonetheless, the purposes of the two measures of recovery are distinct.

Protecting the promisee’s expectation interest “undoes” the breach with regard

to the promise; the effect of disgorgement is to “undo” the breach with regard to

the promisor, who must forego the gains of the breach.

(3) Reconsidering Disgorgement. The disgorgement of profits is not un-

common in non-contract cases; as the district judge concluded in Naval Insti-

c E. Allan Farnsworth (1928–2005) was an eminent contract law scholar, and from 1965

until his death, an editor of this casebook. He taught for fifty years at the Columbia Law School, from which he graduated in 1952. He represented the United States in matters of in-ternational trade law at the United Nations and at UNIDROIT. In 1971, following Professor Robert Braucher, Farnsworth became the Reporter for the Restatement, Second, of Contracts. His treatise Farnsworth on Contracts, kept current by Larry Garvin, is a standard text. In 1998, Prof. Farnsworth published Changing Your Mind: The Law of Regretted Decisions, and in 2004, Alleviating Mistakes: Reversal and Forgiveness for Flawed Perceptions.

http://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=0101349467&fn=_top&referenceposition=1366&findtype=Y&vr=2.0&db=0001292&wbtoolsId=0101349467&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=0101349467&fn=_top&referenceposition=1366&findtype=Y&vr=2.0&db=0001292&wbtoolsId=0101349467&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=0101349467&fn=_top&referenceposition=1366&findtype=Y&vr=2.0&db=0001292&wbtoolsId=0101349467&HistoryType=F


tute, “Naval was entitled to recover damages for copyright infringement, com-

prising actual damages suffered by Naval plus Berkley’s profits ‘attributable to

the infringement.’ 17 U.S.C. § 504(b).” This provision of the Copyright Act re-

quires the infringer to disgorge profits to prevent the infringer from unfairly

benefiting from a wrongful act.

If the measure of disgorgement damages is conceptualized not from the

perspective of the promisee but from the perspective of the breaching promisor,

then disgorgement even in contract cases may not be quite so uncommon. From

this perspective, the consequence of disgorgement is to put breaching promisors

(rather than injured promisees) in the position they would have been in had the

contract been performed. See Steven Thel and Peter Siegelman, You Do Have

to Keep Your Promises: A Disgorgement Theory of Contract Remedies, 52 Wm.

& Mary L. Rev. 1181 (2011). Examples include specific performance (where dis-

gorgement and expectation clearly merge) and the UCC remedy of cover, dis-

cussed in Chapter 7.

(4) Fault. As we saw in Naval Institute, the plaintiff in a contract action

must prove the actual amount of damages it has suffered in order to recover,

and this Naval had some trouble doing: the amount of profits it would have

earned was uncertain. In finding that Naval had come close enough, Judge

Kearse stated that “it is not error to lay the normal uncertainty . . . at the door

of the wrongdoer who altered the proper course of events, instead of at the door

of the injured party.” Should the reason a party fails to perform matter in the

assessment of damages? Should the law care if the breach is willful or innocent,

deliberate or unavoidable? Look for instances where fault appears to signify in

the application of a contract rule despite the fundamental assumption men-

tioned earlier that the law is not generally concerned with the punishment of

promisors.

(5) Puzzler. Why was the transaction in Naval Institute not governed by

Article 2 of the Code?

———

THREE PROTECTED INTERESTS

When determining a remedy for a breach of contract, courts typically seek to put the promisee in the position it would have been in had the promise been kept. One way to accomplish this aim is for courts to compel performance of exactly what was promised, using the remedy known as specific performance. However, specific performance is often unavailable (promised goods may be no longer available) or undesired (would young Hawkins have wanted Dr. McGee to give it another try?). In addition, or-dering a party to do what was promised might require continuing judicial supervision, a task courts are reluctant and perhaps ill-equipped to take on, especially when the performance involves a service or extends over time. These considerations lead to another assumption animating contract remedies in the United States: the appropriate form of relief is compensa-tion for the breach, rather than requiring the promisor to perform. Courts order specific performance only sparingly, and in cases where monetary compensation is “inadequate.” See Restatement § 359. The classic case for specific enforcement concerns the sale of land, since courts have tradition-ally regarded each tract of land as unique and therefore not susceptible to substitution.

http://www.westlaw.com/find/default.wl?ft=L&docname=17USCAS504&rs=ap2.0&rp=%2ffind%2fdefault.wl&fn=_top&findtype=L&vr=2.0&db=1000546&wbtoolsId=17USCAS504&HistoryType=F


If the law seeks to remedy breach by compensating the promisee, what amount of money should the promisor pay? We have already encountered one answer: whatever it takes to protect the promisee’s expectation inter-est. In that case the award should be just enough money to make the prom-isee as well off as actual performance would have made her. On this ac-count, the promisee’s injury consists in being worse off than if the promise had been performed, and expectation damages “undo’’ the effect of breach on the promisee.

Two other commonly pursued interests are reliance and restitution. A promisee has a reliance interest if he has changed his position to his detri-ment by relying on the promise. The promisee may, for example, have in-curred expenses in preparing to perform his part of the deal. The promi-see’s injury consists of being worse off than if the promise had not been made in the first place. Reliance damages protect the promisee’s interest in “being reimbursed for loss caused by reliance.” Restatement § 344(b). As that section explains, reliance damages put the promisee “in as good a posi-tion as he would have been in had the contract not been made.”

The promisee has a restitution interest to the extent that the promisee conferred a benefit on the promisor. The promisee may, for example, have given the promisor a down payment or performed some work before being paid anything. Restatement § 344(c) describes the restitution interest as the promisee’s “interest in having restored to him any benefit that he has conferred on the other party.” Judicial remedies that protect this interest have the effect of “unwinding” the promise by putting the promisor in the position in which she would have been had the promise not been made. These may include damages for the amount of the unjust enrichment, re-scission of the contract, or even disgorgement of any profits made as a re-sult of the breach. See Restatement (Third) of Restitution and Unjust En-richment §§ 37–39. For more on these interests, see the pioneering article cited by the court in the following case, Lon Fuller & William Perdue, Jr., The Reliance Interest in Contract Damages, 46 Yale L.J. 52, 53–57 (1936). For criticism and expansion, see Richard Craswell, Against Fuller and Per-due, 67 U. Chi. L. Rev. 99 (2000) and Avery Katz, Reflections on Fuller and Perdue’s The Reliance Interest in Contract Damages: A Positive Economic Framework, 21 U. Mich. J.L. Reform 541, 542–47 (1988).

In the next case, Sullivan v. O’Connor, the Supreme Judicial Court of Massachusetts considered how the three interests—expectation, reliance, and restitution—play out in the context of an action brought against a cos-metic surgeon for his failure to improve the plaintiff’s appearance as he had promised to do. Our focus in Sullivan is not on the promise, as it was in Hawkins, but on the nature of the remedy.

Sullivan v. O’Connor Supreme Judicial Court of Massachusetts, 1973.

363 Mass. 579, 296 N.E.2d 183.

[Alice Sullivan alleged she had entered into a contract with Dr. James O’Connor for plastic surgery “to enhance her beauty and improve her nose,” but that as a result of the surgery, her appearance had been worsened. She charged him with negligence and with breach of contract. A jury awarded her $13,500 on the latter count, rejecting her charge of negligence. The evi-dence provided support for findings as follow. O’Connor had promised Sul-

http://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=0333397697&fn=_top&referenceposition=57&findtype=Y&vr=2.0&db=0001292&wbtoolsId=0333397697&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=0333397697&fn=_top&referenceposition=57&findtype=Y&vr=2.0&db=0001292&wbtoolsId=0333397697&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0003039&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=0115585751&fn=_top&findtype=Y&vr=2.0&wbtoolsId=0115585751&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0003039&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=0115585751&fn=_top&findtype=Y&vr=2.0&wbtoolsId=0115585751&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000578&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1973113924&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1973113924&HistoryType=F


livan that, in two operations, he would make her nose shorter and more pleasing in relation to her other features. Having failed in that, he per-formed a third operation. Sullivan remained disfigured; and her appear-ance could not be improved by further surgery. Sullivan had paid a fee to O’Connor, and hospital expenses, for a total of $622.65. She was a profes-sional entertainer, as O’Connor had known. She failed to demonstrate, however, that she had lost employment by reason of her change of appear-ance.

O’Connor appealed, contending that the trial judge had erred in in-structing the jury about the issue of damages. Sullivan had also objected to those instructions, on the ground that the judge had not instructed the jury that she was entitled to the difference between the value of her nose as promised and the diminished value of her nose after the operations. How-ever, Sullivan indicated on appeal that she was willing to waive that objec-tion if the appellate court denied O’Connor’s appeal.

The opinion describes the instructions about damages given to the ju-ry, and O’Connor’s objections to them.]

■ KAPLAN, JUSTICE. . . . The judge instructed the jury, first, that the plain-tiff was entitled to recover her out-of-pocket expenses incident to the opera-tions. Second, she could recover the damages flowing directly, naturally, proximately, and foreseeably from the defendant’s breach of promise. These would comprehend damages for any disfigurement of the plaintiff’s nose—that is, any change of appearance for the worse—including the effects of the consciousness of such disfigurement on the plaintiff’s mind, and in this connection the jury should consider the nature of the plaintiff’s profession. Also consequent upon the defendant’s breach, and compensable, were the pain and suffering involved in the third operation, but not in the first two. As there was no proof that any loss of earnings by the plaintiff resulted from the breach, that element should not enter into the calculation of dam-ages.

By his exceptions the defendant contends that the judge erred in al-lowing the jury to take into account anything but the plaintiff’s out-of-pocket expenses (presumably at the stipulated amount). The defendant ex-cepted to the judge’s refusal of his request for a general charge to that ef-fect, and, more specifically, to the judge’s refusal of a charge that the plain-tiff could not recover for pain and suffering connected with the third opera-tion or for impairment of the plaintiff’s appearance and associated mental distress.

The plaintiff on her part excepted to the judge’s refusal of a request to charge that the plaintiff could recover the difference in value between the nose as promised and the nose as it appeared after the operations. Howev-er, the plaintiff in her brief expressly waives this exception and others made by her in case this court overrules the defendant’s exceptions; thus she would be content to hold the jury’s verdict in her favor.

We conclude that the defendant’s exceptions should be overruled . . .

[In an omitted part of the decision, the Court discussed whether a doc-tor’s promise should be unenforceable on policy grounds, concluding that the law allows “actions based on alleged contract, but insist[s] on clear proof . . . that a given result was promised.” The Court then turned to the question of damages.]

If an action on the basis of contract is allowed, we have next the ques-tion of the measure of damages to be applied where liability is found. Some


cases have taken the simple view that the promise by the physician is to be treated like an ordinary commercial promise, and accordingly that the suc-cessful plaintiff is entitled to a standard measure of recovery for breach of contract—“compensatory” (“expectancy”) damages, an amount intended to put the plaintiff in the position he would be in if the contract had been per-formed, or, presumably, at the plaintiff’s election, “restitution” damages, an amount corresponding to any benefit conferred by the plaintiff upon the defendant in the performance of the contract disrupted by the defendant’s breach. See Restatement: Contracts § 329 and comment a, §§ 347, 384(1). Thus in Hawkins v. McGee, 84 N.H. 114, 146 A. 641, the defendant doctor was taken to have promised the plaintiff to convert his damaged hand by means of an operation into a good or perfect hand, but the doctor so operat-ed as to damage the hand still further. The court, following the usual ex-pectancy formula, would have asked the jury to estimate and award to the plaintiff the difference between the value of a good or perfect hand, as promised, and the value of the hand after the operation. (The same formula would apply, although the dollar result would be less, if the operation had neither worsened nor improved the condition of the hand.) If the plaintiff had not yet paid the doctor his fee, that amount would be deducted from the recovery. There could be no recovery for the pain and suffering of the operation, since that detriment would have been incurred even if the opera-tion had been successful; one can say that this detriment was not “caused” by the breach. But where the plaintiff by reason of the operation was put to more pain than he would have had to endure, had the doctor performed as promised, he should be compensated for that difference as a proper part of his expectancy recovery. It may be noted that on an alternative count for malpractice the plaintiff in the Hawkins case had been nonsuited; but on ordinary principles this could not affect the contract claim, for it is hardly a defense to a breach of contract that the promisor acted innocently and without negligence. The New Hampshire court further refined the Hawkins analysis in McQuaid v. Michou, 85 N.H. 299, 157 A. 881, all in the direction of treating the patient-physician cases on the ordinary footing of expectan-cy. . . .

Other cases, including a number in New York, without distinctly repu-diating the Hawkins type of analysis, have indicated that a different and generally more lenient measure of damages is to be applied in patient-physician actions based on breach of alleged special agreements to effect a cure, attain a stated result, or employ a given medical method. This meas-ure is expressed in somewhat variant ways, but the substance is that the plaintiff is to recover any expenditures made by him and for other detri-ment (usually not specifically described in the opinions) following proxi-mately and foreseeably upon the defendant’s failure to carry out his prom-ise. Robins v. Finestone, 308 N.Y. 543, 546, 127 N.E.2d 330. . . . This, be it noted, is not a “restitution” measure, for it is not limited to restoration of the benefit conferred on the defendant (the fee paid) but includes other ex-penditures, for example, amounts paid for medicine and nurses; so also it would seem according to its logic to take in damages for any worsening of the plaintiff’s condition due to the breach. Nor is it an “expectancy” meas-ure, for it does not appear to contemplate recovery of the whole difference in value between the condition as promised and the condition actually re-sulting from the treatment. Rather the tendency of the formulation is to put the plaintiff back in the position he occupied just before the parties en-tered upon the agreement, to compensate him for the detriments he suf-fered in reliance upon the agreement. This kind of intermediate pattern of

http://www.westlaw.com/find/default.wl?ft=Y&db=0000161&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1929115322&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1929115322&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000161&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1932115987&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1932115987&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1955101630&fn=_top&referenceposition=546&findtype=Y&vr=2.0&db=0000578&wbtoolsId=1955101630&HistoryType=F


recovery for breach of contract is discussed in the suggestive article by Fuller and Perdue, The Reliance Interest in Contract Damages, 46 Yale L.J. 52, 373, where the authors show that, although not attaining the cur-rency of the standard measures, a “reliance” measure has for special rea-sons been applied by the courts in a variety of settings, including noncom-mercial settings. See 46 Yale L.J. at 396–401.1

For breach of the patient-physician agreements under consideration, a recovery limited to restitution seems plainly too meager, if the agreements are to be enforced at all. On the other hand, an expectancy recovery may well be excessive. The factors, already mentioned, which have made the cause of action somewhat suspect, also suggest moderation as to the breadth of the recovery that should be permitted. Where, as in the case at bar and in a number of the reported cases, the doctor has been absolved of negligence by the trier, an expectancy measure may be thought harsh. We should recall here that the fee paid by the patient to the doctor for the al-leged promise would usually be quite disproportionate to the putative ex-pectancy recovery. To attempt, moreover, to put a value on the condition that would or might have resulted, had the treatment succeeded as prom-ised, may sometimes put an exceptional strain on the imagination of the fact finder. As a general consideration, Fuller and Perdue argue that the reasons for granting damages for broken promises to the extent of the ex-pectancy are at their strongest when the promises are made in a business context, when they have to do with the production or distribution of goods or the allocation of functions in the market place; they become weaker as the context shifts from a commercial to a noncommercial field. 46 Yale L.J. at 60–63.

There is much to be said, then, for applying a reliance measure to the present facts, and we have only to add that our cases are not unreceptive to the use of that formula in special situations. We have, however, had no previous occasion to apply it to patient-physician cases.2

The question of recovery on a reliance basis for pain and suffering or mental distress requires further attention. We find expressions in the deci-

1 Some of the exceptional situations mentioned where reliance may be preferred to ex-

pectancy are those in which the latter measure would be hard to apply or would impose too great a burden; performance was interfered with by external circumstances; the contract was indefinite. See 46 Yale L.J. at 373–386; 394–396.

2 In Mt. Pleasant Stable Co. v. Steinberg, 238 Mass. 567, 131 N.E. 295, the plaintiff company agreed to supply teams of horses at agreed rates as required from day to day by the defendant for his business. To prepare itself to fulfill the contract and in reliance on it, the plaintiff bought two “Cliest” horses at a certain price. When the defendant repudiated the contract, the plaintiff sold the horses at a loss and in its action for breach claimed the loss as an element of damages. The court properly held that the plaintiff was not entitled to this item as it was also claiming (and recovering) its lost profits (expectancy) on the contract as a whole. Cf. Noble v. Ames Mfg. Co., 112 Mass. 492. (The loss on sale of the horses is analogous to the pain and suffering for which the patient would be disallowed a recovery in Hawkins v. McGee, 84 N.H. 114, 146 A. 641, because he was claiming and recovering expectancy damages.) The court in the Mt. Pleasant case referred, however, to Pond v. Harris, 113 Mass. 114, as a con-trasting situation where the expectancy could not be fairly determined. There the defendant had wrongfully revoked an agreement to arbitrate a dispute with the plaintiff (this was before such agreements were made specifically enforceable). In an action for the breach, the plaintiff was held entitled to recover for his preparations for the arbitration which had been rendered useless and a waste, including the plaintiff’s time and trouble and his expenditures for counsel and witnesses. The context apparently was commercial but reliance elements were held com-pensable when there was no fair way of estimating an expectancy. See, generally, annotation, 17 A.L.R.2d 1300. A noncommercial example is Smith v. Sherman, 4 Cush. 408, 413–414, sug-gesting that a conventional recovery for breach of promise of marriage included a recompense for various efforts and expenditures by the plaintiff preparatory to the promised wedding. . . .

http://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=0333397697&fn=_top&referenceposition=57&findtype=Y&vr=2.0&db=0001292&wbtoolsId=0333397697&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=0333397697&fn=_top&referenceposition=57&findtype=Y&vr=2.0&db=0001292&wbtoolsId=0333397697&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000577&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1921108416&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1921108416&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000521&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1873017359&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1873017359&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000161&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1929115322&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1929115322&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000161&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1929115322&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1929115322&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000521&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1873020399&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1873020399&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1849007633&fn=_top&referenceposition=414&findtype=Y&vr=2.0&db=0002292&wbtoolsId=1849007633&HistoryType=F


sions that pain and suffering (or the like) are simply not compensable in actions for breach of contract. The defendant seemingly espouses this prop-osition in the present case. True, if the buyer under a contract for the pur-chase of a lot of merchandise, in suing for the seller’s breach, should claim damages for mental anguish caused by his disappointment in the transac-tion, he would not succeed; he would be told, perhaps, that the asserted psychological injury was not fairly foreseeable by the defendant as a proba-ble consequence of the breach of such a business contract. See Restatement of Contracts, § 341, and comment a. But there is no general rule barring such items of damage in actions for breach of contract. It is all a question of the subject matter and background of the contract, and when the contract calls for an operation on the person of the plaintiff, psychological as well as physical injury may be expected to figure somewhere in the recovery, de-pending on the particular circumstances. The point is explained in Stewart v. Rudner, 349 Mich. 459, 469, 84 N.W.2d 816. Cf. Frewen v. Page, 238 Mass. 499, 131 N.E. 475; McClean v. University Club, 327 Mass. 68, 97 N.E.2d 174. Again, it is said in a few of the New York cases, concerned with the classification of actions for statute of limitations purposes, that the ab-sence of allegations demanding recovery for pain and suffering is character-istic of a contract claim by a patient against a physician, that such allega-tions rather belong in a claim for malpractice. See Robins v. Finestone, 308 N.Y. 543, 547, 127 N.E.2d 330; Budoff v. Kessler, 2 A.D.2d 760, 153 N.Y.S.2d 654. These remarks seem unduly sweeping. Suffering or distress resulting from the breach going beyond that which was envisaged by the treatment as agreed, should be compensable on the same ground as the worsening of the patient’s condition because of the breach. Indeed it can be argued that the very suffering or distress “contracted for”—that which would have been incurred if the treatment achieved the promised result—should also be compensable on the theory underlying the New York cases. For that suffering is “wasted” if the treatment fails. Otherwise stated, com-pensation for this waste is arguably required in order to complete the resto-ration of the status quo ante.3

In the light of the foregoing discussion, all the defendant’s exceptions fail: the plaintiff was not confined to the recovery of her out-of-pocket ex-penditures; she was entitled to recover also for the worsening of her condi-tion,4 and for the pain and suffering and mental distress involved in the third operation. These items were compensable on either an expectancy or a reliance view. We might have been required to elect between the two

3 Recovery on a reliance basis for breach of the physician’s promise tends to equate with

the usual recovery for malpractice, since the latter also looks in general to restoration of the condition before the injury. But this is not paradoxical, especially when it is noted that the origins of contract lie in tort. See Farnsworth, The Past of Promise: An Historical Introduction to Contract, 69 Col. L. Rev. 576, 594–596; Breitel, J. in Stella Flour & Feed Corp. v. National City Bank, 285 App.Div. 182, 189, 136 N.Y.S.2d 139 (dissenting opinion). A few cases have considered possible recovery for breach by a physician of a promise to sterilize a patient, re-sulting in birth of a child to the patient and spouse. If such an action is held maintainable, the reliance and expectancy measures would, we think, tend to equate, because the promised con-dition was preservation of the family status quo. . . .

It would, however, be a mistake to think in terms of strict “formulas.” For example, a ju-risdiction which would apply a reliance measure to the present facts might impose a more severe damage sanction for the wilful use by the physician of a method of operation that he undertook not to employ.

4 That condition involves a mental element and appraisal of it properly called for con-sideration of the fact that the plaintiff was an entertainer. Cf. McQuaid v. Michou, 85 N.H. 299, 303–304, 157 A. 881 (discussion of continuing condition resulting from physician’s breach).

http://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1957113248&fn=_top&referenceposition=469&findtype=Y&vr=2.0&db=0000595&wbtoolsId=1957113248&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1957113248&fn=_top&referenceposition=469&findtype=Y&vr=2.0&db=0000595&wbtoolsId=1957113248&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000577&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1921108376&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1921108376&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000577&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1921108376&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1921108376&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000578&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1951108605&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1951108605&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000578&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1951108605&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1951108605&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1955101630&fn=_top&referenceposition=546&findtype=Y&vr=2.0&db=0000578&wbtoolsId=1955101630&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1955101630&fn=_top&referenceposition=546&findtype=Y&vr=2.0&db=0000578&wbtoolsId=1955101630&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000602&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1956121067&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1956121067&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000602&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1956121067&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1956121067&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1955101028&fn=_top&referenceposition=189&findtype=Y&vr=2.0&db=0000602&wbtoolsId=1955101028&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&referencepositiontype=S&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1955101028&fn=_top&referenceposition=189&findtype=Y&vr=2.0&db=0000602&wbtoolsId=1955101028&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000161&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1932115987&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1932115987&HistoryType=Fhttp://www.westlaw.com/find/default.wl?ft=Y&db=0000161&rs=ap2.0&rp=%2ffind%2fdefault.wl&serialnum=1932115987&fn=_top&findtype=Y&vr=2.0&wbtoolsId=1932115987&HistoryType=F


views if the pain and suffering connected with the first two operations con-templated by the agreement, or the whole difference in value between the present and the promised conditions, were being claimed as elements of damage. But the plaintiff waives her possible claim to the former element, and to so much of the latter as represents the difference in value between the promised condition and the condition before the operations.

Plaintiff’s exceptions waived. Defendant’s exceptions overruled.

NOTES

(1) Applying the Interests. Assign the following round numbers to Sulli-

van’s claim: doctor’s fee $300; hospital fee per operation $100; pain and suffer-

ing per operation $3,000; increase in value of appearance if enhanced as prom-

ised $20,000; loss in value of appearance due to disfigurement $10,000. What

would be the amount of Sullivan’s claim if based on her restitution interest? On

her reliance interest? On her expectation interest? How did the trial court cal-

culate her damages?

(2) Lost Opportunities as Reliance. It can be argued that by relying on

O’Connor, Sullivan lost the opportunity to deal with another doctor, who would

have done a competent job so that she would have been in the same position as

if O’Connor had performed as promised. How should this form of loss be charac-

terized? If compensable, how should it be measured?

Suppose Sullivan could prove she had lost professional engagements as a

result of Dr. O’Connor’s operations. Are these lost opportunities in the same

sense as losing the opportunity to engage a more competent surgeon? Should

they be recoverable as reliance damages? Are they too speculative? Keep your

eyes open for the relatively rare instances where courts take account of lost

opportunities.

(3) The Case of the Request for Restitution. Not all plaintiffs have shared

the view of the court in Sullivan that “a recovery limited to restitution seems

plainly too meager.” When two oil companies sued the United States for its

breach of lease contracts giving them rights to explore for and develop oil off

the North Carolina coast, what they sought was restitution of $156 million that

they had paid in return for the contracts. Their award of summary judgment

was reversed by the Court of Appeals. The Supreme Court reversed and re-

manded.

The Court observed that when the United States makes contracts, its

rights and duties are governed generally by the law applicable to contracts be-

tween private individuals, as reflected in the Restatement.

We agree that the Government broke its promise . . . and it must give the

companies their money back. . . . And it must do so whether the contracts

would, or would not, ultimately have proved financially beneficial to the

companies. The Restatement illustrates this point as follows:

A contracts to sell a tract of land to B for $100,000. After B has made

a part payment of $20,000, A wrongfully refuses to transfer title. B

can recover the $20,000 in restitution. The result is the same even if

the market price of the land is only $70,000, so that performance

would have been disadvantageous to B. . . .


If a lottery operator fails to deliver a purchased ticket, the purchaser can

get his money back—whether or not he eventually would have won the lot-

tery. And if one party to a contract . . . advances the other party money,

principles of restitution normally require the latter, upon repudiation, to

refund that money.

Mobil Oil Exploration & Producing Southeast v. United States, 530 U.S. 604,

624 (2000) (Breyer, J.).

———

THE ECONOMICS OF REMEDIES: AN INTRODUCTORY NOTE

As noted on p. ___, Justice Holmes, Jr. expressed his concern about the confusion of law and morality in no uncertain terms. Holmes advocated an approach to contracts informed more by external legal sanctions than by moral intuitions: “The duty to keep a contract at common law means a pre-diction that you must pay dam

Date post:	05-Feb-2021
Category:	Documents
Upload:	others
View:	12 times
Download:	2 times

UNIVERSITY CASEBOOK SERIES CONTRACTS - KU Law ......UNIVERSITY CASEBOOK SERIES® CONTRACTS CASES AND...

Documents